The “F” Word in Healthcare

Our healthcare system is really a collection of processes and financial intermediaries driven by billings generated by every single doctor, hospital and pharmacy in the country. It is this system that exacerbates the fraud problem. The fraud and abuse burden of our system, which runs without an aggressive and coordinated prevention policy, may approach $250 billion annually—nearly 10 percent of all U.S. health spending.

Even as President Obama and Congress continue to debate health reform, fraud dollars lost within Medicare and Medicaid vastly outweigh the losses administered by commercial insurers. The corollary: If you think healthcare fraud is a problem now, just wait until the schemes and rampant fraud in Medicare and Medicaid are allowed to proliferate further.

While fraud in healthcare is commonplace and sometimes involves grand or complex schemes, many cases are creative, ongoing, everyday attempts by the bad guys to game the reimbursement system. These include excessive tests and falsified diagnoses, ambulance services billed when none were provided, excessive time increments in psychiatric services billing, bundling high volumes of laboratory tests into single hospital bills, up-coding of procedures, etc. While many fraudulent claims can be easy to spot, others are difficult to identify without sophisticated detection methods.

These charges and payments disappear deep into the reimbursement process and are not tracked directly by consumers who, if they were paying the bill, might care about the cost. Preventing fraud will translate directly to the bottom line—welcome news for CEOs and CFOs struggling with rising health insurance costs. (Fraud detection, correction and prevention ultimately benefits consumers, who of course ultimately are paying for healthcare, via taxation or through payrolldeductions for insurance.)

Unfortunately, the abuse must rise to extreme levels of loss before law enforcement officials deem them worthy of action. Therefore, fraud, even if detected, goes unpenalized.

The key to solving these problems and unlocking the $250 billion in easy money lies in making the data transparent. Policy measures that can be recommended as part of an immediate, aggressive and coordinated approach including having:

State and federal governments publish guidelines for mandatory sanctions and other corrective actions based on fraudulent behaviors/actions.

State governments aggregate claims from Medicaid providers into a fraud detection database.

The medical records of suspected fraudulent providers who exceed the agreed-upon threshold of abuse immediately taken under review.

The attorneys general of each state vigorously pursue alleged violations and the recovery of overpaid dollars.

In January 2009, the attorney general of New York proposed a similar database for New York State as part of a settlement against United Healthcare, Aetna and other payors. The data that will be collected should be highly significant and of great value, especially as it pertains to fraud, because New York leads the nation in Medicaid fraud. Indeed, while only the fourth largest state by population, New York’s per-capita Medicaid spending is more than twice that of California’s.

As news about catching the bad guys will travel fast, CEOs and CFOs would soon see the financial value created by indepth analysis of medical claims data.

Christian Kryder, M.D., is CEO of Verisk Health. The above is adapted from Stop Paying the Crooks.